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US grew slightly more in 4th quarter than earlier estimated Household spending and home building fuel modest US growth
(about 5 hours later)
WASHINGTON — The U.S. economy grew at a slightly faster rate in the fourth quarter than previously estimated, boosted by stronger consumer spending. Consumers may be providing more lift to the economy in the current January-March period. WASHINGTON — Consumer spending and home construction are helping sustain modest U.S. economic growth despite problems caused by a strong dollar, low oil prices and an excess of business stockpiles.
The Commerce Department said Friday that the economy grew at a modest 1.4 percent annual rate in the October-December period. That was better than the 1 percent growth rate estimated a month ago but still below the 2 percent annual growth for the July-September quarter. The economy, as measured by the gross domestic product, grew at a 1.4 percent annual rate in the October-December period, the government said Friday. That was better than the 1 percent growth rate the government had estimated a month ago.
Most of the strength in the revision for last quarter came from an upward boost to consumer spending, particularly involving recreation. Exports also were not as weak as previously thought. Much of the new-found strength came from consumer spending on services such as recreation, which helped offset a manufacturing slump caused in part by a global economic slowdown.
The estimated growth of the U.S. gross domestic product — the nation’s total output of goods and services — was the government’s third and final look at GDP for the fourth quarter. “The consumer and housing are driving the economy despite some nasty headwinds,” said Nariman Behravesh, chief economist at IHS Global Insight. “Manufacturing for all intents and purposes is in a recession, whereas the service sectors are doing fairly well and housing has been a bright spot.”
Friday’s report also contained a potentially worrisome sign — a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 percent in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth quarter profits were also down 11.5 percent from a year earlier — the steepest annual drop since 30.8 percent plunge in the fourth quarter of 2008 at the depths of the financial crisis. Nearly two-thirds of the upward revision in GDP came from the boost in consumer spending, which accounts for about 70 percent of economic activity. Analysts were encouraged by the revised fourth-quarter estimate, saying it provided momentum for the rest of the year, when they expect growth to reach a stronger if still-modest 2 percent annual rate.
On the other hand, consumer spending, which accounts for 70 percent of economic activity, grew at an annual rate of 2.4 percent in the fourth quarter, faster than the 2 percent growth estimated a month ago. Many economists saw this upgrade as a welcome sign that spending should remain strong, helped by solid employment gains this year. “Real economic growth was stronger than we thought late last year, and this makes us more hopeful that the first quarter will be better than expected,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.
“The consumer is back in the driver’s seat with their foot down hard on the gas as last year came to a close,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “Real economic growth was stronger than we thought late last year, and this makes us more hopeful that the first quarter will be better than expected.” Economists say that steady job growth will support further gains in spending and help ease the pressures from overseas. The rise in the dollar’s value has contributed to a higher trade deficit by making U.S. exports more expensive overseas and imports less expensive for Americans.
Also helping boost growth was a slightly smaller drag from the nation’s trade deficit: The deficit widened in the fourth quarter but not as much as previously thought. Exports fell at a 2 percent annual rate, not the 2.7 percent decline estimated a month ago. Trade subtracted 0.14 percentage point from growth in the fourth quarter, less than the 0.25 percentage point previously estimated. Another source of weakness has come from the drop in oil prices, which has triggered layoffs at energy companies and sharp reductions in investment spending on drilling and exploration.
A slowdown in stockpiling by businesses reduced growth by 0.22 percentage point, slightly more than the 0.14 percentage point drag previously estimated. Friday’s report showed that residential investment grew at an annual rate of 10.1 percent in the October-December quarter. That surge helped offset a 2.1 percent drop in nonresidential investment resulting in part from the cutbacks at energy companies.
Many economists think growth as measured by the gross domestic product is accelerating in the current quarter to a 2 percent annual rate. But some analysts have been downgrading their estimates of late, reflecting some weaker-than-expected economic data. Trade subtracted 0.14 percentage point from growth in the fourth quarter. This was slightly less than previously thought because the weakness in exports was less than previously estimated. A slowdown in inventory building cut 0.2 percentage point from growth. Economists say this drag has continued into the current quarter.
Analysts at forecasting firm Macroeconomic Advisers, for example, on Thursday reduced their forecast of first-quarter GDP growth to a 1.5 percent annual rate after the release of a weak report on new orders for long-lasting manufactured goods. Those orders dropped 2.8 percent in February. The estimated growth of GDP — the nation’s total output of goods and services — was the government’s third and final look at economic expansion for the October-December quarter.
That decline was seen as a sign that the nation’s manufacturing sector is still struggling with weakness overseas and a strong dollar, which has made American-made products more expensive in foreign markets. The areas of weakness contributed to a 7.8 percent plunge in corporate profits in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth quarter profits were down 11.5 percent from a year earlier — the steepest annual drop since 30.8 percent plunge in the fourth quarter of 2008 at the depths of the financial crisis.
This year, continued strong gains in hiring could boost household incomes and support solid increases in consumer spending, which accounts for about 70 percent of economic activity. Though profit declines of that magnitude can raise concerns about a possible recession, Behravesh said they were heavily influenced by the weakness in the energy sector. Nearly 80 percent of the $159.6 billion profit decline in the fourth quarter came from a plunge in profits in the petroleum and coal sectors.
“The profit decline was way overstated by the weakness in energy,” Behravesh said. “We are not in a recession, and we are not headed for one. We think a recession this year or even next year is a low probability of only 20 percent.”
Behravesh said he foresees annualized GDP growth in the current January-March quarter of around 1.5 percent, with gradual strengthening as the weakness from low energy prices and paring of stockpile levels wanes. He predicted that growth in the second and third quarters would be around 2.5 percent and then rise to around 3 percent by the final three months of this year.
This month, the Federal Reserve left its key policy rate unchanged after having raised it from a record low in December. Fed officials also scaled back their expectations for the number of rate hikes this year from four to two.This month, the Federal Reserve left its key policy rate unchanged after having raised it from a record low in December. Fed officials also scaled back their expectations for the number of rate hikes this year from four to two.
The officials said they thought the global economy and financial markets still pose risks even though financial markets have stabilized since the year began. Stocks had nosedived after investors worried about how steep the slowdown would be in China, the world’s second-largest economy.The officials said they thought the global economy and financial markets still pose risks even though financial markets have stabilized since the year began. Stocks had nosedived after investors worried about how steep the slowdown would be in China, the world’s second-largest economy.
Analysts have forecast that for 2016 as a whole, the economy will grow around 2 percent. That would be down from 2.4 percent growth for all of 2015, a figure that was not revised in the new report. Analysts have forecast that for 2016 as a whole, the economy will grow around 2 percent. That would be down from 2.4 percent growth for all of 2015, a figure that was not revised in Friday’s report.
Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.